Ukraine is one of the most important producers and exporters of cereals and oilseed crops in the world and a country with abundant natural resources for fisheries and aquaculture. And yet, confronted with seasonal and unpredictable cashflows, for decades Ukrainian banks have looked on the agri-food sector as a high risk venture. This has resulted in steep interest rates and prohibitively high collateral requirements, which particularly impact small and medium-sized enterprises, effectively cutting off access to finance for long-term investments in mechanisation and technology upgrades to improve storage, processing capacity, and logistics infrastructure. In the cereals, oilseeds, and fisheries/aquaculture value chains, such modernisations are needed to meet EU technical, sanitary, and phytosanitary standards and to be competitive both in and outside the Deep and Comprehensive Free Trade Area (DCFTA) that went into force at the end of 2017.
To increase private-sector investment in the selected value chains, the European Investment Bank (EIB) and the Government of Ukraine jointly agreed the €400 million Ukraine Agri-food APEX Loan, which makes available very substantial resources for mid-caps and SME investments in an effort to increase their productivity and profitability. Ukraine will repay the loan as part of its sovereign debt.
The future of Ukraine and the Ukrainian people remains of utmost importance to the EU and to the EIB … The loan project has been designed to remove key bottlenecks in investments that will help Ukrainian enterprises realise their competitive potential on national and global markets.
Technical assistance to expedite lending
However, now in its fourth year of war and continuing to face issues of macroeconomic instability and extensive poverty and insecurity, Ukraine is a complex place to work. And so, while the loan can improve the situation, the limited, albeit growing, capacity of the Ukrainian authorities and private sector make its effective use more difficult.
As a result, NIRAS and its consortium partners – AESA, TA Consult, and Unicon – were brought in to provide technical assistance to ensure timely, appropriate, and efficient distribution and use of loan funds.
The €400M line of credit will be available for intermediary banks serving mid-cap firms (≤3K employees) and small/medium-sized enterprises (≤250 employees) based in Ukraine. The types of investments eligible for financing include, for example, quality control and certification systems, agricultural machinery, production, drying or storage facility upgrades or aquaculture and cold chain infrastructure in the fish sector. Potential beneficiaries therefore include input suppliers, farmers, processors, storage and logistics operators, as well as testing laboratories, research, and education institutions and extension services that contribute to the functioning of target value chains.
Reaching final beneficiaries directly and indirectly
Based in Kyiv, the NIRAS-led project team will work on two levels, providing support and advice to intermediary banks (including commercial banks and agricultural leasing companies) lending to SMEs and mid-caps in the cereals, oilseeds, and fisheries sector and then directly to the loan applicants themselves on how to meet the loan requirements.
An important aspect of the project is to build local capacity both among the intermediary banks – in terms of training on identifying potential bankable projects and conducting due diligence – but also through mentoring of local specialists based in oblasts (Ukrainian regions) who provide advisory services to farmers and other loan applicants, for example on business training and the requirements necessary to make their farm a business and a bankable client. These specialists could include local government, particularly the oblast and community agricultural departments, but also NGOs such as the national Agricultural Advisory Service or business associations such as the Ukrainian Grain Association or the Ukrainian Agrarian Confederation and their local affiliates.
4.3 m tonnes
Ukraine’s State Import-Export Bank, Ukreximbank, will coordinate the loans, all of which must be approved by the Ministry of Finance. The Ministry of Agrarian Policy and Food will help identify projects suitable for investment. State-owned enterprises can apply for funding through the EIB loan, but must do so on the same basis and in the same way as private-sector enterprises, through financial intermediaries and Ukreximbank.
The project team will reach out to banking intermediaries to make them aware of the APEX loan and the services offered through project, which will be outlined in a general call for interest by Ukreximbank. In order to expand lending to the targeted value chains, loan personnel generally need training to develop expertise and understanding of agricultural credit in value chain lending. In terms of the specific sectors, the project will work with the banks to gain deeper knowledge and better understand the risks and how to manage them using the risk tools such as crop receipts and off-take contracts and early warning systems for possible defaults.
As the banking sector in Ukraine is complex and in flux, an assessment of the possible financial intermediaries is currently underway. The project is also assessing regional agricultural extension services, business service provider capacity, potential final beneficiaries in the three targeted value chains.